Air passenger traffic grows 22%, but supply may outpace demand: ICRA
The domestic passenger traffic growth for FY2017 stood at 21.8%, in line with ICRA estimates and the industry reported second consecutive year of ~22% traffic growth. The growth was primarily propelled by increasing supply in the industry through fleet expansion by existing airlines and scale up by new airlines. Higher supply, intense competition and resultant lower airfares were the key growth drivers during FY2017. The growth in capacity addition, which typically lags passenger traffic growth, caught up during FY2017 with ~20% growth.
The fleet expansion also resulted in addition of sizeable capacity on international routes. Though the passenger traffic growth on international routes in FY2017 was a moderate 8.4%, the Indian airlines, with YOY growth of 11.8%, outperformed the industry growth on the back of capacity additions. Resultantly, market share of Indian carriers on international routes crossed 35% for the first time in the last 5 years.
The domestic passenger traffic growth during March 2017, however, remained moderate at ~15% for the second consecutive month. The industry PLF reported a YOY decline for the first time in last 9 months, which might be an indication of supply outpacing demand.
In spite of increased competitive intensity, Indigo consolidated its leadership position with over 40% domestic market share for FY2017, which was a result of rapidly expanding fleet coupled with lower yields. Jet Group and Air India Group were the biggest losers of market share during the year, whereas new airlines - Vistara and Air Asia - continued to expand their respective market shares gradually. Suspension of operations of 2 regional airlines – Air Pegasus and Air Costa – resulted in contraction of market share of regional airlines during the year.